John Nyaradi: Keith is the Chief Investment Strategist of Money Map Press and Money Morning and is widely regarded as one of the world’s leading experts on global investing. His publications reach over 600,000 daily subscribers in 30 counties. He’s also a regular contributor and guest commentator on Fox Business News and is author of “Fiscal Hangover: How to Profit from The New Global Economy.”

Today, we’re going to talk about Keith’s book and how we can find opportunities as we move into the Autumn of 2011. Keith, let’s start with the downgrade of the U.S. credit rating and the debt situation in the United States.

Keith Fitz-Gerald: You bet. Well, you know, the short view is that basically you have a series of what I call nanny states, and those are the debtors, and you have a series of creditor states, and it’s not difficult to figure out who’s who. Basically, the nanny states are those in Western Europe and the United States and Japan where debt has dramatically exceeded all rational spending levels and all rational semblance of reality. There is no way that we can possibly pay all this back. That stands in stark contrast to the nations that are now creditors, which is why money is flowing literally around the world from the nanny states to the creditor states.

Keith Fitz-Gerald: Well, this is not going to be pretty. You know, this is what Washington does not understand, this is what the banks around the world refuse to acknowledge, and this is certainly what our leaders cannot comprehend. Eventually the creditors are going to reach a point where they say, I’ve had it, we can’t do this anymore, and enough is enough. Paper money is very, very close to that point right now.

Are we saying it’s doom and gloom, are things going to fall apart? You know, that’s a very tough question. We lived through the crash of 1929 and the Great Depression afterwards. I think we’ll get through it this time, too, but the only question in my mind is that since we’re putting off making the tough decisions now, how bad it’s actually going to get and that’s the great unknown.

Three or four years ago when this crisis started, we had options. Our government had options. We could have changed the course that we’re on now. But we’re looking at having spent $4 trillion and we’ve got unemployment that’s still in the high nines. We’ve got real growth priced into the bond market that is 0.6% in the United States; if you look at Europe, it’s only marginally higher.

John Nyaradi: The PIIGS have been in the news for a long time and now just recently Italy and even Spain, along with Greece. Is there a Lehman Brothers event coming in Europe?

Keith Fitz-Gerald: I think there is. Last time I checked there were a couple of trillion dollars of net credit default swap exposure against European debt and I still don’t believe that the banks have come clean. The stress tests over there are a joke and the Greek holiday is going to be forced upon everybody, ready or not. And you can look at the price of credit default swaps now around the world. First they went after Greece. Then they went after Ireland and they’re going to go after Portugal, Spain, and Italy. Eventually, it’s going to be France. Ultimately, it’s going to be the EU and then it’s going to be the US.

John Nyaradi: What’s ahead regarding the Fed? QE3, 4, 5?

Keith Fitz-Gerald: It’s going to be like that old “Jaws” movie series. You know, there’s going to be “Jaws 1, Jaws2, Son of Jaws, Jaws Returns.” There is no end to this. As long as the politicians and the central bankers around the world believe that they understand risk and that bailouts are a good thing, we’re in deep Kimchi. There is no way out of this and millions of investors are being taken on a white-knuckle ride that they didn’t deserve and they didn’t sign up for.

However, you and I have talked about this in the past, from chaos comes opportunity. If you think back to every single one of the great traumatic events in recorded world history, they have created legendary wealth in the years that followed for those who have the guts and the “chutzpa” to invest when days are darkest. And I think we’re headed into another period like that right now, which is why the optimist believes in me that there will be another golden age of investing. Granted, it’s not going to be by the rules that we think we know today, but I believe it’s going to occur.

John Nyaradi: Looking ahead to that day, what would be the asset classes that people should be thinking about?

Keith Fitz-Gerald: Well, the data is already beginning to be very clear on that and it’s something that we have followed for several years and that I lay out in “Fiscal Hangover.” Generally, you want to be concentrating on those nations that are creditors. You want to avoid those nations that are debtors. So that speaks to investing in companies that are big global brands with diversified operations and real cash flow around the world, with particular exposure to the Asian markets and the creditor nations.

These are very simple to figure out. These are companies like Coca-Cola and Pepsi. These are companies like Raytheon AMD, places that you can get not only solid growth, but big dividends, too, because that’s always a benefit. Also, you generally want to be hedged with inflation-resistant investments, commodities in particular. Most investors have overlooked those historically, not really understanding their function or their value.

Now, that this crisis has hit and money itself is changing, the very definition of value is coming to the forefront again. A lot of people think this is a new development, but it’s one that actually dates back thousands of years. So you’ve got to have oil, you’ve got to have gold, you’ve got to have silver, not huge amounts, but you’ve got to have, you know, according to the data, something like 5% to 10% of your portfolio allocated to these things. If the world goes to heck in a hand basket, they will help preserve your value. If the world recovers, these are things that are all going to be in high demand because of industrial usage or the offset against weaker currencies.

John Nyaradi: You’re a China expert. Is there a hard landing ahead for China? What should people watch out for there?

Keith Fitz-Gerald: Well, you know, China is one of those enigmas. People in the west do not understand very much about China. In fact, they understand very little about it, even though it’s one of the oldest nations in the world and has 5000 years of recorded history. It is the 800-pound gorilla in the room. For 18 out of the last 20 centuries, it has had the world’s largest GDP. So the thing that people need to understand is that it’s not going away, it’s not stopping, it’s not an aberration, and the genie is out of the bottle.

And things that change around the world because of China are going to create opportunities that are probably the greatest we’ll see in our lifetimes. For example, China is buying huge amounts of gold right now. That has had a substantial influence on the price of gold. They have also created gold futures markets. That too is creating additional liquidity for gold itself, which has traditionally been priced off the CME and the New York Me rc. So here you’ve got an indirect example of how they’re affecting world markets.

If you’re talking about a company like McDonald’s, China’s middle class is somewhere in the neighborhood of 300 million people, all of whom want the basic things that you and I want. So that speaks to opportunities in water purification, laundry machines, and things as mundane as TVs and stereos and cars. That’s why Chinese car manufacturers are among the busiest and most productive in the world. So people say, well Detroit’s back. You know, GM just posted earnings and it’s global sales that are driving that company. Detroit is not back. Detroit is here because China is on the move.

John Nyaradi: Keith, many people in our audience today are in retirement or close to retirement and they just feel like they’ve been burned one too many times by the stock market. You write about how to build a stockless portfolio, can you give us some insight into that?

Keith Fitz-Gerald: Sure, and I don’t blame people for feeling badly burned. This market is the toughest I’ve seen in my lifetime. So I think that “safety first” is the mantra right now.

If you want to go stockless, you want to be thinking about things like resources, you want to think about things like master limited partnerships, particularly when they come to energy. Not only are those things very stable and largely independent, but when you talk about pipelines, in particular, they’re independent of the actual price of the underlying commodity. Regardless of what the price of oil or natural gas is, you get a toll for moving it in the pipeline and that usually kicks off very high dividends that are very attractive right now.

Specific municipal obligation bonds offer income, and preferred stock, even though we said, we’re stockless, is more like a hybrid bond instrument. So you can derive high income and still capture part of the movement in the stock market if it does go up. This is all about stability and safety first just because the companies that tend to have preferred stocks tend to be much more stable and tend to have more experienced management. In particular, they happen to have real underlying value attached to them.

John Nyaradi: We’ve read a lot about the all the money printing and deficit spending and that the outcome of that is going to be inflation. Do you see inflation ahead and how do you protect the buying power of your money when that comes?

Keith Fitz-Gerald: The laws of money are very, very clear on that. Inflation is going to be an inevitable byproduct of the amount of money we have printed. The only problem is — or let me rephrase that, not the only problem, the reason why we don’t have Wiemar style inflation at the moment is that we’ve been largely able to export it; we have exported a significant portion of the inflationary pressure that should have taken our economy to the cleaners already. If things were correct and if the laws of money were not being meddled with by those guys in Washington, inflation would probably be around 8%, 9%, 10% right now, which is what most of us are actually already feeling in our wallets.

John Nyaradi: So gold and commodities would be good inflation hedges?

Keith Fitz-Gerald: Gold has statistically never, ever, ever proven to be an inflationary hedge. But it has been proven to be a great crisis hedge and that’s one of the reasons why it’s running up so sharply right now. I also favor oil. People think it’s an energy investment, but in reality, it’s sort of a non-currency, currency. People are getting disgusted with the dollar as a reserve currency and I think the days for the dollar are limited, which is why oil is a great choice. Every nation needs it, every nation uses it, and every nation trades it.

John Nyaradi: This has been a very serious conversation about a very serious subject. I always like to end these conversations with just sort of an open-ended question. Is there anything else on your mind right now, anything else you’d like to add that people should be thinking about, that you’re thinking about?

Keith Fitz-Gerald: These are very serious times, but I cannot reiterate strongly enough that from opportunity comes chaos. You can’t have one without the other. So even though it’s tempting to put your head in the sand and say thank you very much I’m just fine down here, in reality, the biggest fortunes and the best returns and the most stable investments are going to belong to those who stay in the game right now.

John Nyaradi: Folks, we’ve been talking with Keith Fitz-Gerald, author of “Fiscal Hangover: How to Profit From the New Global Economy,”that gives you deeper insights into all of these topics. The book has received great reviews from people like Peter Schiff, Jon Markman, Alexander Green, and Dr. Mark Skousen. I’d like to add my humble endorsement and say it’s a great read that can definitely help you through these difficult days.

To learn more about Keith and his book, just follow the link at the bottom of this interview that will take you right to Keith’s page at Amazon.com.

Keith, really it has been wonderful chatting with you today. I appreciate it and thanks for joining us. I know we’re all looking forward to talking with you again soon.